Resilient US consumers drive strongest economic expansion in 2 years

WASHINGTON (AP) — The U.S. economy grew at a surprisingly strong 4.3% annual rate in the third quarter, the most rapid expansion in two years, driven by consumers who continue to spend in the face of ongoing inflation.

U.S. gross domestic product from July through September — the economy’s total output of goods and services — rose from its 3.8% growth rate in the April-June quarter, the Commerce Department said Tuesday in a report delayed by the government shutdown. Economists surveyed by the data firm FactSet forecast growth of just 3% in the period.

As has been the case for most of this year, the consumer is providing the fuel that is powering the U.S. economy. Consumer spending, which accounts for about 70% of U.S. economic activity, rose to a 3.5% annual pace last quarter. That's up from 2.5% in the April-June period.

A number of economists, however, believe the growth spurt may be short-lived with the extended government shutdown dragging on the economy in the fourth quarter, as well as a growing number of Americans fatigued by stubbornly high inflation.

A survey published by the Conference Board Tuesday showed that consumer confidence slumped close to levels not seen since the U.S. rolled out broad tariffs on its trading partners in April.

“The jump in consumer spending reminds me a lot of last year’s (fourth quarter),” said Stephen Stanley, chief U.S. economist at Santander. “Consumers were stretching. So, as was the case entering this year, households probably need to take a breather soon.”

The seemingly divergent paths between how consumers say they are feeling and how much money continues to be spent may be more evidence of what is known as a a “ K-shaped economy ” In that situation, the income of wealthier Americans is on the rise, due to stock market gains and growing investments, while lower-income households struggle with stagnant pay and higher prices.

“The latest data on household spending indicates continued strong gains in consumer spending, particularly on services,” wrote Michael Pearce, chief U.S. economist for Oxford Economics. “We think that reflects the K-shaped consumer recovery, with spending growth driven by older, wealthier households while those on low and more moderate incomes struggle.”

Tuesday's GDP report also showed that inflation remains higher than the Federal Reserve would like. The Fed’s favored inflation gauge — called the personal consumption expenditures index, or PCE — climbed to a 2.8% annual pace last quarter, up from 2.1% in the second quarter.

Excluding volatile food and energy prices, so-called core PCE inflation was 2.9%, up from 2.6% in the April-June quarter.

Economists say that persistent and potentially worsening inflation could make a January interest rate cut from the Fed less likely, even as central bank official remain concerned about a slowing labor market.

“If the economy keeps producing at this level, then there isn’t as much need to worry about a slowing economy,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management, adding that inflation could return as the greatest threat to the economy.

Another consistent driver in the U.S. economy, spending on artificial intelligence, was also evident in the latest data.

Investment in intellectual property, the category that covers AI, grew 5.4% in the third quarter, following an even bigger jump of 15% in the second quarter. That figure was 6.5% in the first quarter.

Consumption and investment by the government grew by 2.2% in the quarter after contracting 0.1% in the second quarter. The third quarter figure was boosted by increased expenditures at the state and local levels and federal government defense spending.

Private business investment fell 0.3%, led by declines in investment in housing and in nonresidential buildings such as offices and warehouses. However, that decline was much less than the 13.8% slide in the second quarter.

Within the GDP data, a category that measures the economy’s underlying strength grew at a 3% annual rate from July through September, up slightly from 2.9% in the second quarter. This category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending.

Exports grew at an 8.8% rate, while imports, which subtract from GDP, fell another 4.7%.

Tuesday’s report is the first of three estimates the government will make of GDP growth for the third quarter of the year.

Outside of the first quarter, when the economy shrank for the first time in three years as companies rushed to import goods ahead of President Donald Trump’s tariff rollout, the U.S. economy has continued to expand at a healthy rate. That’s despite much higher borrowing rates the Fed imposed in 2022 and 2023 in its drive to curb the inflation that surged as the United States bounced back with unexpected strength from the brief but devastating COVID-19 recession of 2020.

Though inflation remains above the Fed’s 2% target, the central bank cut its benchmark lending rate three times in a row to close out 2025, mostly out of concern for a job market that has steadily lost momentum since spring.

Last week, the government reported that the U.S. economy gained a healthy 64,000 jobs in November but lost 105,000 in October. Notably, the unemployment rate rose to 4.6% last month, the highest since 2021.

The country’s labor market has been stuck in a “low hire, low fire” state, economists say, as businesses stand pat due to uncertainty over Trump’s tariffs and the lingering effects of elevated interest rates. Since March, job creation has fallen to an average 35,000 a month, compared to 71,000 in the year ended in March. Fed Chair Jerome Powell has said that he suspects those numbers will be revised even lower.

FILE - A person carries a shopping bag in Philadelphia, Wednesday, Dec. 10, 2025. (AP Photo/Matt Rourke, File)

A television on the floor at the New York Stock Exchange in New York, display a news conference with Fed chairman Jerome Powell, Wednesday, Dec. 10, 2025. (AP Photo/Seth Wenig)

FILE - People shop at the Christmas Village in Philadelphia, in Philadelphia, Wednesday, Dec. 10, 2025. (AP Photo/Matt Rourke, File)

Roofers work atop a house in Anna, Texas, Thursday, Dec. 18, 2025. (AP Photo/LM Otero)

OSLO, Norway (AP) — Former U.N. human rights chief Navanethem “Navi” Pillay, a judge on the International Court of Justice, won the Nobel Peace Prize on Friday in Oslo, Norway.

The South Africa-born Pillay, 85 years old, was recognized for her efforts to promote peace and international law, said Jørgen Watne Frydnes, Chair of the Norwegian Nobel Committee.

Pillay’s work “is a source of hope and inspiration to all those who seek to bring about a more peaceful world,” Watne Frydnes said announcing her win.

Watne Frydnes said the committee had not yet been able to reach Pillay to inform her she had received the peace prize, which is often considered the most prestigious honor on the planet.

“At a time when the number of wars and conflicts is rising, and when judges and institutions of international law are under political attack, the Nobel Committee wishes to issue a reminder that the ability to resolve conflicts without force or violence is dependent on the international rule of law,” the committee wrote in a news release.

“An international legal system in which war criminals are held to account and the victims of abuse see justice served is a precondition for a peaceful world.”

The Norwegian Nobel Committee in Oslo received nominations for 287 candidates for this year’s prize, with just over a quarter of them organizations. Experts say the committee typically focuses on the durability of peace, the promotion of international fraternity and the quiet work of institutions that strengthen those goals.

Last year, Venezuelan opposition leader María Corina Machado won the Nobel Peace Prize for her struggle to achieve a democratic transition in the South American nation, winning recognition as a woman “who keeps the flame of democracy burning amid a growing darkness.”

Machado gave Trump her Nobel medal shortly after the United States ousted then-President Nicolás Maduro. But it was largely a symbolic gesture: the Nobel Committee has said the honor itself cannot be transferred.

Nominations can be made by a select group of people and organizations, including heads of state or politicians serving at a national level, university professors, directors of foreign policy institutes, past Nobel Prize recipients and members of the Norwegian Nobel Committee itself.

Four of this year's Nobels were announced earlier this week. The Nobel for medicine went to three scientists whose work led to a tool that uses light to help unravel how the brain works. The physics award recognized a scientist’s efforts to demystify a rare group of neutrinos. The chemistry prize recognized two scientists for untangling mysterious mirror images in molecules, a discovery that has been used to develop countless drugs.

Canadian poet, essayist and translator Anne Carson won the literature prize Thursday for “bold and inventive” works that fuse the classical and the modern and blur the boundaries of poetry and prose.

The Nobel Memorial Prize in Economic Sciences will be announced Monday.

The prize money this year is 12 million Swedish kronor (about $1.2 million), whether for an individual, small group of laureates or organization.

This year marks the 125th anniversary of the peace prize, which so far has gone to 112 individuals and 28 separate institutions since its inception in 1901. The Red Cross has won three times and the U.N. refugee agency twice.

The prize has gone unawarded on 19 occasions, most of them during the world wars. In 1948, the year Mahatma Gandhi was assassinated, no prize was awarded; he had been nominated 12 times and never won.

In 1939, a Swedish member of parliament nominated Adolf Hitler, then withdrew the nomination, saying it was never meant seriously.

Dazio reported from Berlin and Lewis reported from Stavanger, Norway.

AP Nobel Prizes: https://apnews.com/hub/nobel-prizes

The Chairman of the Nobel Committee, Jørgen Watne Frydnes, announces the Nobel Peace Prize 2026 at the Nobel Institute in Oslo, Norway, Friday, Oct. 9, 2026. (Javad Parsa/NTB Scanpix via AP)

The Chairman of the Nobel Committee, Jørgen Watne Frydnes, announces Navanethem Pillay as the 2026 Nobel Peace Prize laureate at the Nobel Institute in Oslo, Norway, Friday, Oct. 9, 2026. (Javad Parsa/NTB Scanpix via AP)

FILE - U.N. High Commissioner for Human Rights South African Navanethem Pillay prior to the 23rd session of the Human Rights Council, at the European headquarters of the United Nations in Geneva, Switzerland, May 27, 2013. (Salvatore Di Nolfi/Keystone via AP, File)

FILE - U.N. human rights chief Navanethem Pillay prior to the opening of a session of the Human Rights Council at the European headquarters of the United Nations in Geneva, Switzerland, June 18, 2012. (Salvatore Di Nolfi/Keystone via AP, File)

FILE - A Nobel diploma and medal are displayed, Dec. 8, 2020, during a ceremony in New York. (Angela Weiss/Pool Photo via AP, File)